New York tech startups come of age

Commentary: Just stop calling it 'Silicon Alley'

NEW YORK (MarketWatch) -- In the late 1990s, as Silicon Valley's tech industry headed into boom-land, so too did New York City.

A slew of startups formed, many focused on "new media," or advertising on the Internet. I lived in the city for part of it, and it was a crazy time. Venture and corporate money flowed, and dot-com parties became a frequent occurrence in lower Manhattan, where many of the new media startups clustered. Somehow along the way, the moniker "Silicon Alley" was given to one of the densest urban areas in the U.S., where nary a computer chip firm was to be found.

But much like its namesake in the San Francisco Bay Area, New York also imploded after the dot-com boom and bust, with Darwinism getting rid of the worst ideas, like the free delivery service, Kozmo.com. Slowly, though, over the last decade, New York has been building a real tech center, where software, media, and ad-related startups are thriving, a venture capital community is growing and serial entrepreneurs are as commonplace as they are in Silicon Valley.

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"There is a general feeling here, a buzz, that there is momentum here," said David Silverman, a partner PricewaterhouseCoopers in New York.

And like Silicon Valley, where many veterans from eBay Inc.'s
EBAY, -0.88%
PayPal have become successful angel investors and entrepreneurs, Google Inc.'s
GOOG, -1.10%
acquisition of DoubleClick has had a spillover effect in New York.

Some co-founders of DoubleClick have also become angel investors and have gone on to found other companies. Kevin Ryan has invested in a TheLadders.com, a job searching service and the Gilt Groupe, an invitation-only luxury goods shopping site. Ryan also co-founded the business news site, Silicon Alley Insider, with DoubleClick co-founder Dwight Merriman and former Wall Street analyst Henry Blodget, and a content delivery network called Panther Express.

DoubleClick's former Chief Executive Kevin Rosenblatt recently emerged as chairman of a new startup still in stealth mode, with funding from three venture firms and former AOL Time-Warner executive Bob Pittman. The company, Group Commerce, develops group advertising buying technology and payment infrastructure for publishers, according to its website.

"As one of the most successful financial exits from the dot-com era, DoubleClick made people in Silicon Valley realize that there may still be some fire coming out of New York," said Tristan Louis, a New York-based entrepreneur and blogger (and also a friend).

Like Silicon Valley, New York entrepreneurs have learned from their mistakes in the past. They are starting companies on smaller budgets and conserving funds, unlike the free-flowing days of the boom. And because many of New York's young companies focus on financial services, Internet software and advertising, they have lower initial costs compared to the semiconductor and hardware companies that begot Silicon Valley in its early days, which are more capital intensive and require more space.

"Startups don't need a lot of capital," said Jeff Stewart, founder and chief executive of Urgent Career, who has also founded a half a dozen companies.

Silverman of PWC also said the startups in New York, like their counterparts on the West Coast, are more focused on reaching profitability. "Back then it was a gold rush mentality," he said of the late 1990s. "Now it's building a business."

Recent PricewaterhouseCooper Money Tree data shows that the New York region ranks number four in total VC investment, after Silicon Valley, Los Angeles and Boston. And in terms of funding for software companies, New York ranked only second to Silicon Valley for VC funding in the second quarter.

If you can make it there...

One New York startup that is well-known in Silicon Valley is Foursquare, the geolocation company which lets people check-in with their mobile devices at restaurants, museums, stores and other venues. The service lets your friends know where you are via Facebook or Twitter and users accumulate points for frequent visits.

Foursquare's two founders, Dennis Crowley and Naveen Selvadurai met when each was working at a different startup in the same building in New York. They launched Foursquare in 2009 and have raised about $21 million in funding in the last two years.

A Foursquare spokeswoman said that New York ended up being a perfect place to launch their service. "They were able to find plenty of great talent in New York," said Erin Gleason of Foursquare. "New York is a challenging city to build location-based services for because of its density, so once they built a product that could work well in New York City, they figured it would work well in other, smaller cities as well."

It's hard to get an accurate count of how many startups there are in New York, because the number is quickly growing. Next month, the New York Venture Capital Association is holding an "Ingenuity" conference to showcase some of the region's firms and the growth of the New York venture community. Fred Wilson of Union Square Ventures is now seen as a veteran among New York VCs, as is Draper Fisher Jurvetson's Gotham Ventures arm.

Bonnie Halper, who is also a friend, is president of Sendresume, a recruiting firm, and founder of Startuponestop.com, a free business to business community helping out startups. She noted there are now more angel investors and startup incubators in New York. VCs are also now more willing to provide seed funding than they had in the past.

"Don't forget that startups don't always necessarily want huge investment up front," Halper said. "They want to own more of their own product, so they may take $250,000 instead of the $1 million to $5 million."

And what about that inappropriate moniker? No one calls New York "Silicon Alley" anymore.

"Now we just call it New York," Halper said. "The industry in New York has finally come of age."

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